Federal Budget: small business $20k instant asset write-off scheme extended by one year

Businesses with an annual turnover of up to $10 million will benefit from the $20,000 instant asset tax write-off scheme for a further 12 months, the Government announced in the Federal Budget. The extension has generally been welcomed, although there have been calls to make the measure permanent and increase the write-off threshold to benefit more businesses.

Originally set to conclude at the end of 30 June 2017, the scheme allows small businesses to immediately deduct assets costing less than $20,000, instead of claiming deductions over numerous years. It is on a per asset basis allowing multiple claims for assets costing less than $20,000 to be deducted.

Tim Reed, the CEO of accounting software provider MYOB, described the government’s decision as ‘welcome news’ for SMEs, explaining that it would encourage business growth. However, he said the Government should go ‘one step further’ in next year’s budget and make the scheme permanent.

Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), also welcomed the extension of scheme; however, she said her office “would have liked a lift in the $20,000 threshold for the instant asset write-off because for some industries, like farming, the $20,000 threshold is too low to enable them to purchase equipment.”

Referring to decision to maintain the write-off threshold at $20,000 for another year, Andrew Conway, CEO of the Institute of Public Accountants (IPA), said “common sense has prevailed. He continued, “The increase in the accelerated depreciation write-off threshold to $20,000 has been of great assistance to small business cash flow. The reversion to $1,000 would have had a negative impact on the broader economy as the incentive for small businesses to reinvest in their future would be taken away; restricting potential growth, employment and prosperity. Small businesses Australia-wide should be very pleased with this outcome; it brings an injection of economic growth, giving small businesses the confidence to buy new equipment, reinvest in their operations and grow.” Echoing the sentiment of MYOB CEO Tim Reed, Conway said the higher instant asset write-off “should be a permanent feature of our tax system going forward”.

Rob Hango-Zada, co-founder and co-CEO of logistics start-up Shippit.com said the continuation of $20,000 instant asset write-off is “great for conventional SMBs that are at the stage of turning a profit” but less so for tech start-ups, which are “inherently capital heavy to establish with most running at a loss for the first 2 years through the establishment phase. He continued, “Given that new age SMBs or “startup” businesses would lack the P&L characteristics to benefit from the write off, what more is being done around innovation grants / funds to help finance innovation in tech. Or alternatively is this being driven by tax breaks for investors as per the Early Stage Venture Capital Limited Partnerships (ESVCLP) initiative?”

Hango-Zada’s assessment was in line with that of Michael Jankie, chief executive of ‘social Wi-Fi’ start-up PoweredLocal. Jankie said the extension of the $20,000 instant asset write off is “a big deal for traditional small business, less so for tech-sector and research and development type companies”.

Government to spend $300m worth on red tape cuts

In addition to the extension of the $20,000 instant asset write-off scheme, other Federal Budget measures with implications for small businesses include a $300 million incentive to the States and Territories to cut red tape, according to Small Business Minister Michael McCormack

“The Government will provide up to $300 million over two years to States and Territories through the National Partnership on Regulatory Reform to reduce regulatory burdens and remove unnecessary restrictions on competition,” Small Business Minister Michael McCormack explained.

“Whilst the Federal Government has delivered red tape reduction and simpler paperwork – especially the simpler BAS, which begins from 1 July – I want to work with the States and Territories to continue this good work,” Mr McCormack said.

“Across Australia I have heard similar stories of how compliance costs can prevent small businesses from investing in themselves or spending time with family and friends.

“This $300 million incentive over two years will help us work with the States and Territories to make the business of doing business even simpler.”

According to David Spurritt, Executive Director – Taxation Consultant, Bentleys SA, while a reduction in compliance costs is a key priority in terms of what small businesses want, he was curious as to how the $300 million would actually translate to benefits for SMEs. He added, “The Federal Government has delivered a Budget with some wins for small to medium businesses but aside from the extension of the $20,000 write-off scheme, there isn’t a lot there for SMEs.”

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